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Consolidation of Aircraft Charter & Management (ACM) in the U.S.

In the last 20 years there has been innovation in the structure of available entry points in general aviation, especially in the corporate jet market. First, fractional programs which allowed an owner to buy an ownership share of an aircraft in the mid to late 1990s. Then, jet card programs came about; some were offered by ACM companies who had their own fleets and others were offered independent of any operator. More recently subscription models have been developed and represent a new pricing model for aircraft charter. While these changes have been overall positive for the industry by introducing more people to the benefits of general aviation, they have put competitive pressure on traditional charter operators, especially smaller, independent charter companies focused on mid and heavy jets.

The number of charter companies declined over 20% from 2002 to 2012 and that trend is likely to continue and accelerate. This is due to the inherent structure of the traditional (managed aircraft/revenue share) charter model. This model is one of high operating leverage with an administrative financial burden driven by regulatory requirements and increasingly complex safety management systems. Once that overhead burden is overcome, then additional aircraft under management have high incremental contribution. Independent operators who manage aircraft at smaller airports in smaller markets have less opportunity to add additional aircraft to increase profitability, thereby being at a disadvantage with regard to future growth. ACM companies with multiple locations at major markets benefit the most and enjoy higher levels of profitability relative to single location independent operators.

Similar to the consolidation in the FBO industry seen in the last 25 years, the ACM industry in the U.S. is likely to experience similar and significant consolidation in the coming decades. The aforementioned mandated high overhead will pressure smaller operators and benefit larger ones. Other attributes which will drive value for ACM operators are whether (1) they own their facilities under long term leaseholds at airports, (2) possess the right to fuel their fleets directly, and (3) have enough organic maintenance capability to provide timely service to their own fleet. Operators which possess these characteristics will be viewed as more valuable relative to other charter companies due to the sustainability over time that these attributes confer.

So what will a successful ACM company look like in the near future? The most financially stable and successful operators will likely have over 25 aircraft on Part 135 certificate in large, major markets. Many will own their facilities under direct lease with the airport in these major markets, and have fueling rights for their fleets similar to Fixed Base Operators and large corporate flight departments (those which are left). And they will have significant maintenance, repair and overhaul (MRO) capability (and in most cases Part 145 repair station licenses for scale and incremental earnings to keep their revenue producing aircraft in operation.